PSX Extreme

Site Stats

Take-Two Denies EA Twice, Full Proposal Letters Revealed

In the in the interest of full closure, we've decided to put
up the extremely lengthy exchanges between Electronic Arts' CEO
John Riccitiello and Take-Two's Executive Chairman Strauss
Zelnick. The full exchange surfaced just a few hours after news
of EA's buy-out proposal broke yesterday afternoon. While the
exchange is filled with vernacular you may not understand, it's
still a worthy read, and if anything an insightful look into the
operations of a big business.

For those who don't wish to read the entire thing and would
prefer a summary, here's a brief explanation:

Certainly, there's a lot more depth to the discussion than my
summarization, so I do suggest reading through the emails for
additional details. Reading Riccitiello's emails, it feels almost
as if his tone is a bit aggravated. He's made numerous remarks
about being extremely interested in Take-Two and their game
portfolio, so his frustration from Take-Two's reluctance to budge
is understandable. But we have to really commend Take-Two here,
and we pray that they stick to their guns. They have an amazing
2008 in store for them.

Congratulations on your recent announcement about the release
date for Grand Theft Auto IV. I am sure it must feel great to
have this important title locked and ready.

Further to our recent discussions, this letter is to formally
express Electronic Arts Inc's. ("EA") interest in
acquiring Take-Two Interactive Software, Inc.
("Take-Two") and to propose a transaction in which EA
would acquire all of the outstanding shares of Take-Two common
stock for $25 per share payable in cash. We are confident we can
consummate a transaction quickly, confidentially and on the terms
proposed.

We believe that moving quickly to negotiate and conclude our
proposed merger is in the best interest of Take-Two and EA.
Waiting for a later date leaves open significant uncertainty
regarding the timing, the probability and the value of a
potential transaction and is not in the best interests of either
company or Take-Two's stockholders.

We also believe the proposed merger provides an attractive
outcome for Take-Two's employees and business partners. We have a
powerful product slate for 2008 and beyond with exciting releases
planned for many of EA's well-established franchises as well as
important new franchises we are launching such as SPORE, Dead
Space, Dragon Age and Mirror's Edge. We feel that Take-Two's IP
portfolio is well aligned against EA's product footprint and its
studios fit well with our decentralized divisional model.
Take-Two's creative teams are an essential part of the Take-Two
business, and we believe EA would offer a stable and supportive
environment for your studios to focus on developing great new
games with the backing of a global games industry leader. We
believe EA can and will represent the best home for these teams
anywhere in the entertainment world.

We have completed a thorough review of Take-Two's public
information and are prepared to move forward immediately to
consummate a transaction with minimum disruption to Take-Two. We
believe that with adequate access to the necessary information we
can complete all required due diligence in approximately 2 weeks.
We believe that our due diligence review would require limited
access to a small number of senior executives of Take-Two and its
legal, accounting and financial advisors. Importantly, no
interaction with any of the studio leaders will be required until
our other due diligence is completed and the material terms of a
transaction are agreed to.

Considerable time and resources have been put forth in developing
this offer, and our Board of Directors has approved its delivery
to Take-Two. Our offer is not conditioned on any financing
requirement. However, our offer is subject to the satisfactory
completion of our due diligence review of Take-Two, the
negotiation and execution of mutually acceptable definitive
transaction agreements and the satisfaction of customary
conditions to be set forth in such agreements.

We do not intend to make this letter public and our offer will
automatically terminate and be withdrawn in its entirety if any
portion of this letter, or the existence of discussions between
EA and Take-Two relating to a possible business combination, are
disclosed to any person other than the directors and officers of
Take-Two and its legal and financial advisors.

We look forward to hearing back from you by the close of business
on Friday, February 15, 2008, with a response to our proposal.

I am available to meet and discuss all aspects of this proposal
with you and your Board. If you have any questions, please do not
hesitate to contact me. I very much look forward to hearing from
you and working with you and the Take-Two team to consummate a
successful transaction.

Thank you for your letter of February 6, 2008. The position of
the Board of Directors (the "Board") of Take-Two
Interactive Software, Inc. (the "Company") with respect
to an acquisition of the Company by Electronic Arts Inc.
("EA") has not changed from that which you and I have
previously discussed.

As part of the Board's stated objective of maximizing shareholder
value, we have been and remain open to considering a business
combination with interested parties at the right time and the
right price. However, the Board has concluded that EA's proposal
has not been delivered at a time nor does it contemplate a price
which is consistent with this objective.

On a personal note, I want to thank you for the courtesy
reflected in our prior discussions and also your letter. I look
forward to getting to know you better in the future.

Thank you for your letter of February 15, 2008. While I
appreciate its courteous tone and value our ongoing dialogue, I
am disappointed that you have rejected Electronic Arts Inc.'s
("EA's") $25 per share cash offer to acquire Take-Two
Interactive Software, Inc. ("Take-Two") and declined to
engage in the friendly negotiations we proposed. We continue to
believe that an acquisition of Take-Two by EA is in the best
interests of your shareholders, employees and other constituents,
and we remain interested in acquiring Take-Two. So, to further
demonstrate our seriousness and encourage you to move forward
now, I am writing to increase EA's offer to acquire all of the
outstanding shares of Take-Two to $26 per share in cash. This
offer is subject to Take-Two agreeing by February 22, 2008 to
commence negotiation of a definitive merger agreement and to
permit EA to commence a limited due diligence review of Take-Two.

Our revised all-cash offer represents a 64% premium over
Take-Two's most recent closing price and a 63% premium over
Take-Two's 30-day trailing average price (based on prices as of
market close on Friday, February 15th). We believe our offer
represents a unique and compelling opportunity for Take-Two
shareholders to maximize the value of their investment in the
company, with materially lower risk than if Take-Two proceeds on
a stand-alone basis.

We also believe that the transaction we are proposing represents
a uniquely attractive opportunity for Take-Two's creative teams
and key employees. EA is a diversified leader with
well-established franchises and proven intellectual properties,
global reach, and significant financial resources. I know we both
agree that Take-Two's talented creative teams deserve a permanent
home within a stable and growing publisher that provides these
teams an environment to do what they do best - create great
games. EA is organized in a four-label model that provides our
creative teams the autonomy they need to fully realize their
creative ambitions, while also providing a stable and supportive
corporate and publishing infrastructure which allows them to best
address the global marketplace. We have the resources to make the
significant investments in technology and infrastructure needed
for the most creative and innovative games in the industry. In
short, a combination with EA would provide Take-Two's studios and
employees a combination of the right resources for investment and
global reach, and the right environment to do their best work.

We believe that Take-Two's shareholders would not be well-served
by any further delay in negotiating and completing the proposed
merger. While the videogame industry remains an attractive,
high-growth business, the challenges and risks in the business
are escalating, and the need for scale is becoming more
pronounced. Despite steps taken since March 2007, Take-Two
remains dependent on a limited number of titles, and has limited
capital resources. In addition, Take-Two faces ongoing financial,
legal and operating issues and a very intense competitive
environment. Given these factors, we believe it will be
increasingly difficult for Take-Two to create sustainable
shareholder value and that Take-Two remains exposed to
considerable risk of value loss.

We also believe that any delay in this proposed transaction works
against the interest of Take-Two's shareholders, because:

* There can be no certainty that in the future EA or any other
buyer would pay the same high premium we are offering today. We
place significant value on the ability to close the transaction
relatively quickly so that EA's strong publishing and
distribution network, including our global packaged goods, online
and wireless publishing organizations, can positively impact the
catalogue sales of GTA IV and also the launch and sale of titles
released later this year. We want to work with you and your team
to complete the transaction in time to begin realizing its
significant marketplace benefits in advance of this year's
holiday selling season.
* We believe Take-Two's current share price already reflects
investor expectations for a strong release of GTA IV as well as
the longer-term issues that Take-Two faces. Once GTA IV ships,
Take-Two will again be dependent on less-popular titles and face
increasing challenges to compete with larger and
better-capitalized competitors.
* With GTA IV shipping on April 29, development on this important
title must now be essentially complete. We believe now is the
right time to complete a transaction with minimal disruption for
Take-Two.

We also believe the transaction we are proposing will create
value for EA's shareholders. In addition to the top-line benefits
noted above, we can achieve bottom-line benefits by combining
Take-Two's and EA's corporate and publishing infrastructures and
by optimally supporting Take-Two's creative teams and
intellectual properties in EA's decentralized label structure.

Considerable thought, time and resources have been put forth in
developing this offer, and our Board of Directors unanimously
supports it. Our offer is not conditioned on any financing
requirement. It is subject to the satisfactory completion of a
due diligence review of Take-Two, the negotiation and execution
of mutually acceptable definitive transaction agreements, and the
satisfaction of customary conditions to be set forth in such
agreements. We are prepared to move forward immediately with
formal due diligence and the negotiation and execution of a
definitive merger agreement and believe that with adequate access
to the necessary information and people, we can complete both in
approximately two weeks. We believe that our due diligence review
can be completed with minimal disruption, requiring only limited
access to a small number of senior executives of Take-Two and its
legal, accounting and financial advisors. We also have prepared a
draft merger agreement that we can forward to you immediately.

Our strong preference is to conduct a private negotiation. If you
are unwilling to proceed on that basis, however, we may pursue
other means, including the public disclosure of this letter, to
bring our offer and the compelling value it represents to the
attention of Take-Two's shareholders.

I am available to meet and discuss any and all aspects of this
proposal with you and your Board. Again, we believe this proposal
represents a unique opportunity to maximize value for Take-Two's
shareholders, and that the combined enterprise would be
extraordinarily well positioned to build value for our respective
customers, employees, developers and other business partners. We
hope that you and your Board share our enthusiasm, and we look
forward to hearing back from you by February 22.

Thank you for your letter of February 19, 2008. As you know, the
Board of Directors (the "Board") of Take-Two
Interactive Software, Inc. ("Take-Two" or the
"Company") carefully considered Electronic Arts Inc.'s
("EA's") previous offer of $25 per share and concluded
that neither the timing of the proposed acquisition nor the price
was consistent with the Board's objective of maximizing
stockholder value. The Board's rationale for rejecting EA's prior
offer is not altered by your decision to increase that offer by
four percent.

I would like to reiterate, in the clearest possible terms, the
Board's conviction that this is not the right time for Take-Two
to enter into a negotiation to sell the Company. Our organization
is keenly focused on the scheduled April 29th launch of Grand
Theft Auto IV, and on maximizing the value of the game to the
Company and, in turn, our stockholders. It is the Board's
strongly held view that beginning strategic discussions now would
distract our Company and thereby threaten the value of this key
franchise.

While I understand that you may disagree with the Board's
reluctance to commence discussions immediately, the Board and I
want to assure you that our concerns about timing are genuine.
Potential negative financial consequences to Take-Two are
significant and we believe outweigh the benefits of commencing
discussions at this time. As you know, there is no certainty that
EA will actually close on the proposed transaction on mutually
agreeable terms, especially since you have proposed a price that
we would not accept and have qualified your offer by a diligence
request. Moreover, as we have all seen time and again, the
process surrounding acquiring a public company from start to
finish is complex, uncertain, intrusive and distracting, and we
believe it would be especially so to the creative artists at the
core of our business and to all those who may be displaced by a
transaction.

While the Board is convinced that discussions at this time would
be imprudent, we also appreciate the potential benefit of a frank
and private dialogue with EA. To that end, the Board would be
willing to commit to entering into a good-faith discussion with
EA on April 30, 2008 to determine if we can reach common ground
on the proper value of the Company and therefore an appropriate,
mutually beneficial transaction. This would, of course, be
subject to both parties reaching a mutually acceptable
confidentiality agreement on customary terms. We are prepared to
begin negotiating this confidentiality agreement immediately.

In order to alleviate any concerns you may have about the
proposed starting date for these discussions, I would be pleased
to meet with you privately as soon as possible to talk on a
general basis. In addition our Board would confirm, subject to
its fiduciary duties, that from now until April 30, 2008 (the
"Quiet Period"), the Company will not pursue
negotiations with any other potential strategic partner for a
business combination unless we have first contacted you. Further,
if the Company receives any bona fide offer to acquire the
Company during the Quiet Period that the Board decides to
explore, the Company will immediately inform EA and we understand
that EA may then act as it sees fit.

I would like to note that if EA chooses to announce publicly the
Board's proposal or announce any offer by EA to acquire the
Company during this Quiet Period or if the contents of this
letter become publicly available in sum and substance, the
Company will consider all of its alternatives, including
discussions with other parties, and further we will reserve the
right to refuse to provide EA access to information or diligence.

John, I believe I know you well enough to rely on your
considering this proposal in the same good faith we have in
making it. I look forward to your favorable response.

Comments (7 posts)

Nice to see Take-Two holding their ground and standing firm on their position. Let's just hope the shareholders don't buy into EA and makes things troublesome. NY Times has an article about the deal and a short bit mentions how EA has always screwed up the games of companies they bought out. Hopefully people will think twice when they put EA's reputation into consideration.

Seeing EA's direction of BUYING companies as opposed to IMPROVING their own tells me that nothing good can come from the merging.

BESIDES - I would rather have 2 companies COMPETING with each and producing more quality games because of the competition. EA should seriously take note on "quality" and "improvement" as opposed to how to make more $$$ because GOOD games bring more $$$. I guess they just want a short-cut as opposed to investing time and making a good game.

Honestly, neither brand has better games - they're both fairly equal. As far as critical praise is concerned: on one hand Take-Two has Bioshock, GTA, Midnight Club, NBA 2K, NHL 2K, Bully, and a few others I can't think of. While EA has Madden, NBA Street, Burnout, FIFA, The Sims, SKATE, and CRYSIS.

And in between all of that is a lineup of lackluster to average games between both brands: All Pro Football, NFL Tour, FIFA Street 3, Medal of Honor, The Darkness, James Bond, State of Emergnecy, MLB 2K, Conflict, etc.

This does make me happy. I wouldn't wanna see Take-Two go to EA. That would be bad for all the people who like the 2K sports games. Plus just seems like EA just wants Grand Theft Auto. So they can just full their pockets more.